Benefits - Group Life Insurance

Life and Accidental Death Dismemberment

A group life insurance plan provides coverage for a group of employees under a group contract held by the employer. If the plan qualifies under Code Section 79, the cost of the first $50,000 of life insurance is tax free to the employees. Group life insurance is usually set up as term coverage according to one of the following standard policies:

Flat Benefit Amount
Salary Schedule
Class Schedule

Alternative Life Insurance Plans - Carve Out For Executives

Executives covered under a company's group life insurance plan can often obtain better benefits by being removed from the group plan and given separate individual policies provided by the employer. Removing executives from a group plan does not alter the qualified status of the group life plan for the remaining employees.

	GROUP TERM	CARVE OUT
Income tax to employees	First $50,000 of insurance is income tax free.	All coverage is taxable at the lower of PS58 rates or insurer's term rate.
Premium deductibility to the corporation	Full premium deductibility.	Depending on the goals of the corporation and the way that the insurance is set up, deductibility varies.
Cost to corporation	Increases as group ages.	Most plans are level premium contracts.
Non-discrimination coverage requirements	Section 79 requirements apply. If these are not met, key employees lose $50,000 exemption.	None.
Benefit non-discrimination requirements	Section 79 requirements apply. Generally benefits must be a uniform percentage of compensation for all participants.	None. Coverage can vary from executive to executive.
Underwriting	Possible group underwriting depending on size of group and the benefit is usually guaranteed issue.	Medically underwritten for each individual.
Treatment at retirement	Usually terminates or is reduced sharply due to increasing employer costs.	Can be continued beyond retirement with no increased employer cost. Employee cost remains equal to the PS58 costs.
Use of cash value/permanent insurance	May result in unfavorable taxation to covered employees.	Enhances plan flexibility.